Oh mate it's crazy here! I saw on the project the other day the average cost of houses in Sydney at near a million dollars! I'm here on working holiday from America and I knew prices were higher but I was still surprised by how much I needed to spend to live.

The only thing I took from that article is that I should sell my 1 bedroom apartment and buy a European castle :-P

Seriously, though, is that assessment of expensiveness just based off raw cost, or does it factor in the median wages too? I mean, I know everything costs more here, but we're also paid a lot more compared to other places.

tl;dr:
The Australian heads of nine of the biggest global drug suppliers were forced into the embarrassing admission on Tuesday after backing themselves into a corner by insisting they have no idea what their own sister companies in other countries pay to import the same medicines.

That's not "the" reason. Bigger is that insurance companies do not pay what they're billed, some pay as little as ten cents on the dollar. That means healthcare providers have to inflate the prices to make sure what they end up getting paid covers their costs.

(Disclaimer: I am an Australian employee of a multinational conglomerate, and one of the divisions of the conglomerate is a pharmaceutical company. My employer, nor any of its arms, is not mentioned in this article, but my company's competitors are. What follows is entirely my own opinion, and nothing I say should be taken as authoritative with regards to my employer, or be construed as having any bearing upon my employer.)

I'm a bit annoyed with the (lack of) logic employed by a number of media reports, including this one.

When a multinational is setting the prices that its manufacturers (e.g. in China) charge its selling and distribution arms (e.g. in Australia) there are a few principles that should be followed. Two of them are:

Prices charged by the manufacturer should be similar to those that you would expect in a transaction between unrelated parties (third-party or arm's length principle)

And/Or

Prices should represent the amount of business risk taken on by the customer (risk-reward principle).

On the first principle: When you buy petrol, do you know whether you're paying the same price at your service station that you would pay at another station on the other side of town? Most of the time, no, you wouldn't. This is because it's a third party transaction. So then, if one of these multinationals is following the principles outlined above, the Australian bosses SHOULDN'T know how much there others are paying. If they did know, it wouldn't be comparable to a third-party transaction, as required under the first principle.

On the second principle: I know that, in my Australian employer, we bear very little risk. We don't do costly R&D, we often don't bear the risk of overstocking or discontinuing, we don't take the costs if we need to recall a product, etc. We're basically just a glorified selling and marketing company, with a small warehousing operation on the side. Considering that we don't bear very much of the risk (and considering that we didn't research and develop the goods in the first place) should we get a large slice of the overall profit? Should not the company that took all the risks in the first place, and the company that continues to bear most of the risks in the present and the future, be compensated with greater rewards (via high prices)?

Also, the article compares taxes with sales. This is obviously a poor comparison, as companies pay taxes based on their profits, not their sales. For example, if a new, purely Australian company, with no overseas relationships, lost $1 million in 2014, but had taxable sales of $3 million and deductible expenses of $900,000 in 2015, then that company would give only $30,000 of company tax to the government for 2015 - that's a tax rate of 30% of profit (the statutory rate) but only 1% of sales per the article's logic. That's not tax evasion, nor tax avoidance - that's mathematics.

I don't know whether the big pharma companies mentioned are actually doing the wrong thing. But so far, from what I've heard, people seem less interested in figuring out what's actually happening and whether it follows the principles above, and more interested in unfairly demonising big companies. I'm all in favour of making sure that things are done properly, but the line taken by this article is, in my opinion, counterproductive towards this aim.

On the first principle: When you buy petrol, do you know whether you're paying the same price at your service station that you would pay at another station on the other side of town? Most of the time, no, you wouldn't. This is because it's a third party transaction. So then, if one of these multinationals is following the principles outlined above, the Australian bosses SHOULDN'T know how much there others are paying. If they did know, it wouldn't be comparable to a third-party transaction, as required under the first principle.

You're contrasting a perfectly competitive market (petrol) with an essentially noncompetitive market (pharmaceuticals.) I don't care how much my petrol costs because I know the price will be more or less competitive with other stations in the region. In pharmaceuticals, that's not the case.

A better analogy would be, one parent company sells all the petrol in Berlin. However, the Berlin wall is still up. The company decides to maximize profit, they charge $1 a gallon in East Berlin, and $6 a gallon in West Berlin. However, because of the wall, you can't go and buy it where it's cheaper. However, because of the expense, and patents, no one else can enter the market. It's also illegal to cross to the other side of town to buy your gas. You then expect people not to care that they are spending $6 a gallon for something that doesn't cost $6 to produce. Not likely.

On the second principle: I know that, in my Australian employer, we bear very little risk. We don't do costly R&D, we often don't bear the risk of overstocking or discontinuing, we don't take the costs if we need to recall a product, etc. We're basically just a glorified selling and marketing company, with a small warehousing operation on the side. Considering that we don't bear very much of the risk (and considering that we didn't research and develop the goods in the first place) should we get a large slice of the overall profit? Should not the company that took all the risks in the first place, and the company that continues to bear most of the risks in the present and the future, be compensated with greater rewards (via high prices)?

Of course not, but then again, should a company be allowed to charge one thing in one country and something else in another? Or should I be able to cross town to buy my gas where I spend $1, or have them deliver it? The simple answer would be to license pharmacies in other countries to ship name brand drugs to the USA, and then prices would be more competitive.

This is a difficult path to walk. On one hand, these companies DO require SOME profit at the initial launch of a new drug product due to the insane cost sunk into the R&D sometimes decades before the drug may actually be marketed and sold. On the other hand, these companies clearly do whatever they can to extend a patent even after a drug that has cost over $50 a tablet has been in the market for 10+ years far exceeding their initial R&D investment. We need to find a middle ground....

Not saying this is morally right, but there are a lot of costs besides production (i.e. R&D, shipping, distribution, advertising, store fronts, etc.). At the end of the day, people invest in these companies and expect a profit. If companies make too much of a profit, then other companies will come in and undercut them - that's how the free market works. If the shoes were made locally, some of those costs would be passed on to the consumer.

Here's a nice source about the revenue of the shoe market. The average revenue is +- 8 million $/year. I have a hard time to believe that more that on average 7 million$/year is needed to cover the costs of a company. This raises my question if the market isn't having backroom deals to get a high profit.

It still mindfucks me that pharmacies in America actually have advertisements for their products. It's insane. They're meant to be treated as special prescriptions, not like a lolly you can pick up when you're feeling a certain way.

The US pharm industry does even more worse shit. They send sales reps to doctors to give lunches and gifts and after that they can track how many of their pills the doctors are prescribing. It's one of the most consistently profitable sectors in the stock market.